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Market overview

All of the major equity indices rose during the third quarter of 2016, with the strongest performance coming from U.S. small-cap equities and emerging market equities. U.S. and global investment grade fixed income securities also delivered modestly positive returns.

Style

Benchmark

Index return for 3Q16 (in USD)

U.S. large-cap growth

Russell 1000® Growth Index

+4.6%

U.S. large-cap value

Russell 1000® Value Index

+3.5%

U.S. small-cap

Russell 2000® Index

+9.0%

International growth

MSCI EAFE Growth Index (gross)

+5.0%

International value

MSCI EAFE Value Index (gross)

+8.2%

Emerging markets

MSCI Emerging Markets Index (gross)

+9.2%

U.S. fixed income

Bloomberg Barclays U.S. Aggregate Index

+0.5%

Global fixed income

Bloomberg Barclays Global Aggregate Index

+0.8%

Sources: Bloomberg, MSCI, and Russell, October 2016

The price of oil declined during the third quarter of 2016, as did the prices of many other commodities. The S&P GSCI® and the Thomson Reuters/CoreCommodity CRB Index both dropped, and the spot price of gold also fell. All else equal, we believe a fall in commodity prices is likely to mean better margins for manufacturers, but lower profits for producers of oil, gas, and raw materials.

Category

Benchmark

06/30/16

09/30/16

Change

Broad commodities

S&P GSCI

374.0

364.5

-2.6%

Broad commodities

Thomson Reuters/CoreCommodity CRB Index

192.6

186.3

-3.2%

Crude oil

West Texas Intermediate spot

48.33

48.24

-0.2%

Gold

New York spot price

1322.20

1315.75

-0.5%

Source: Bloomberg, October 2016

The currency markets were fairly active during the third quarter of 2016. The trade-weighted euro and the trade-weighted yen both rose, while the trade-weighted dollar dropped slightly during the quarter. The trade-weighted pound continued to fall, as the markets have remained dubious about the long-term outlook for the British economy. In general, an economy’s competitiveness tends to be enhanced by currency depreciation and tends to be impaired by currency appreciation.

Trade-weighted currency

Source

06/30/16

09/30/16

Change

U.S. dollar (USD)

U.S. Treasury via Bloomberg

96.1

95.5

-0.7%

Euro (EUR)

Bank of England via Bloomberg

88.1

89.7

+1.8%

Sterling (GBP)

Bank of England via Bloomberg

80.2

77.0

-4.0%

Japanese yen (JPY)

Bank of England via Bloomberg

149.8

151.6

+1.2%

Source: Bloomberg, October 2016

Within the Funds

The Asset Allocation Committee’s decisions are taken collectively, and the weightings assigned to individual asset classes reflect the consensus of opinion across all members. During the quarter, the Committee reduced its exposure to U.S. large-cap equities, while remaining overweight in U.S. small-cap equities and in fixed income securities, and also increasing its tactical exposure to U.S. real estate investment trusts (REITs). The Committee also moved closer to neutrality in emerging market equities, though it remains underweight in foreign equities. As has been true for the past few years, the Committee remains underweight in cash and cash-like securities.

Relative to strategic policy weights

Asset class

Underweight

Neutral

Overweight

U.S. large-cap core

U.S. large-cap growth

U.S. large-cap value

U.S. small-cap core

International growth

International value

Emerging markets

Diversified fixed income

Cash and cash equivalents

Notes: The graphic above is based on tactical positions of Delaware Foundation Funds relative to the strategic policy weights for each Fund, with tactical and strategic weights adjusted by total assets under management (AUM) in each Fund, and breakpoints at 0.5%, 1%, and 3%; weights reflect tactical positioning as of Sept. 30, 2016; actual sleeve weights may deviate from tactical weights due to different rates of asset appreciation and other factors; tactical weights may vary from time to time, and Delaware Investments makes no commitment to update this information in a timely manner; tactical weights are provided for information purposes only and should not be construed as asset allocation advice.

Outlook

The Committee continues to believe that a global economic recovery will likely require consumers to begin spending more freely, and the available evidence indicates that this is starting to occur in the U.S. economy. There is still good reason to be apprehensive about the economic outlook for Europe, where proponents of austerity-based approaches continue to dominate policy making. The referendum in late June on whether Britain should leave the European Union seems to have increased the volatility of financial markets in Europe, and there are continuing market concerns about the outlook for banks in the euro zone. However, the Committee continues to believe that the global economy is gradually moving toward more normal conditions.

As described above, the Funds continue to have a slightly defensive position relative to their strategic policy weights. Nevertheless, the Committee continues to believe that the global macroeconomic environment may continue to improve, though probably at a rather slow pace. Over the medium term, the Funds’ commitment to global diversification may prove beneficial, as participating in a large number of different markets may help reduce the risk that any single market might deliver disappointing performance in any particular period.

Diversification may not protect against market risk.

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Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

The views expressed represent the Manager's assessment of the Fund and market environment as of the date indicated, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Information is as of the date indicated and subject to change.

Document must be used in its entirety.

Definitions

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

The Bloomberg Barclays U.S. Aggregate Index is a broad composite that tracks the investment grade domestic bond market.

The MSCI EAFE Growth Index is a subset of the MSCI EAFE Index, which measures equity market performance across developed market countries in Europe, Australasia, and the Far East, and consists of those securities classified by MSCI as most representing the growth style.

The MSCI EAFE Value Index is a subset of the MSCI EAFE Index, which measures equity market performance across developed market countries in Europe, Australasia, and the Far East, and consists of those securities classified by MSCI as most representing the value style.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe, and includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe, and includes those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe.

The S&P GSCI Index, formerly Goldman Sachs Commodity Index, is a world production-weighted index composed of the principal physical commodities that are the subject of active, liquid futures markets.

The Thomson Reuters/CoreCommodity CRB Index is a widely recognized measure of global commodities markets that is designed to provide a representation of long-only, broadly diversified investments in commodities.

Performance

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.

Total returns may reflect waivers and/or expense reimbursements by the manager and/or distributor for some or all of the periods shown. Performance would have been lower without such waivers and reimbursements.

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from July 29, 2016 to July 29, 2017. Please see the fee table in the Fund’s prospectus for more information.

Share class ticker symbols

Institutional Class

DFGIX

Class A

DFGAX

Class C

DFGCX

Class R

DFGRX

Top 10 holdings as of 11/30/2016Holdings are as of the date indicated and subject to change.List excludes cash and cash equivalents.

Holding

% of portfolio

Samsung Electronics Co. Ltd.

0.7%

Chevron Corp.

0.7%

AT&T Inc.

0.6%

Microsoft Corp.

0.6%

Novartis AG

0.6%

ITOCHU Corp.

0.5%

Celgene Corp.

0.5%

Merck & Co. Inc.

0.5%

Pfizer Inc.

0.5%

Halliburton Co.

0.5%

Total % Portfolio in Top 10 holdings

5.7%

Institutional Class shares are only available to certain investors. See the prospectus for more information.

All third-party marks cited are the property of their respective owners.

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by clicking the prospectus link located in the right-hand sidebar or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

This Fund is subject to the same risks as the underlying styles in which it invests.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

If and when the Fund invests in forward foreign currency contracts or uses other investments to hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.

International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.

Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.

Risk controls and asset allocation models do not promise any level of performance or guarantee against loss of principal.

You can check the background of your investment professional on FINRA's BrokerCheck.

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Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Funds’ investment manager, Delaware Management Company (DMC), and the Funds’ distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide. DMC, a series of Delaware Management Business Trust, is a U.S. registered investment advisor.

Any Macquarie Group entity noted on this page is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and that entity's obligations do not represent deposits or other liabilities of Macquarie Bank Limited (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of that entity, unless noted otherwise.

Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Funds' investment manager, Delaware Management Company (DMC), and the Funds' distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide. DMC, a series of Delaware Management Business Trust, is a U.S. registered investment advisor.